Package soon to boost economy; no cuts in fuel rates: Arun Jaitley

Experts have called for measures to stimulate the economy after GDP growth slumped to a three year low of 5.7% in the April-June quarter.

ET Bureau|

Updated: Sep 21, 2017, 12.15 AM IST

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Watch: Additional measures on the anvil to boost growth, says Jaitley

Finance minister Arun Jaitley said steps to lift the slowing economy will be taken after these are endorsed by Prime Minister Narendra Modi.

“We have taken note of all the economic indicators available,” Jaitley told reporters in the Capital on Wednesday. “The government will take any additional moves which are necessary.”

He declined to provide details, saying the measures would be unveiled only after consultation with the prime minister.

The last quarter's dismal figures prompted economists to pare estimates for the fiscal year ending March 2018.

Experts have called for measures to stimulate the economy after GDP growth slumped to a three year low of 5.7% in the April-June quarter.

“We have taken note of all the indications which are coming and over the last two days I have had a series of discussions with some of my ministerial colleagues, secretaries and other experts within the government,” he said. Jaitley said the Modi government was a proactive one, indicating that measures could be coming soon.

“In terms of our own reforms agenda and reacting to situations as and when the situation demands we have been taking appropriate actions and we have been consistently moving on the reforms agenda,” he said.

While disruptions due to the rollout of the goods and services tax (GST) on July 1 and the lingering impact of demonetisation are seen as the main reasons for the economic dislocation, some experts said the decline had set in a year ago and is more structural in nature. GDP growth has slowed from 7.9% in April-June 2016 to 7.5%, 7%, 6.1% in subsequent quarters on the way to 5.7% in the last one. Jaitley said inflation was still within the statutorily fixed monetary policy target of 4% (with a two percentage point window on either side). Retail inflation hit a five-month high of 3.36% in August.

“During the monsoon period, vegetable prices generally go up. This is the spike period. When it is 3.36% in the spike period, it is under control as per the traditional Indian standard," he said. The Reserve Bank of India is set to make its next monetary policy announcement on October 4 amid calls for a cut in interest rates to help stimulate growth.

SPIKE IN FUEL PRICES With regard to high fuel prices amid low global crude rates, Jaitley said the government needs revenue to support public spending without which growth will suffer. Those political parties seeking a cut in taxes on fuel should first ask their state governments to do so. States levy a high amount of sales tax or value added tax (VAT) on fuel, he said, without referring to the Rs 11.77 per litre hike in excise duty on petrol and Rs 13.47 per litre increase on diesel between November 2014 and January 2016, which took away gains arising from plummeting international oil rates. The VAT rate on petroleum varies from 38% to 48%. Petroleum products aren’t covered by GST. Jaitley, however, said that fuel prices will settle down soon.

“You should remember that the government needs revenue to run,” he said. “How will you build highways? The government has increased public spending on infrastructure...

Whatever (GDP) growth is there, it is fuelled by public spending and FDI (foreign direct investment). If public spending is slashed, it will mean cutting down expenditure on social sector scheme.”

That’s all the more important as there is hardly any private investment, he said, responding to questions from reporters after the weekly Cabinet meeting on whether the government would consider cutting excise duty on fuel. Petrol prices have risen by Rs 7.44 per litre since early July to Rs 70.52 a litre in Delhi, the highest in three years. Diesel rates have gone up by Rs 5.35 to Rs 58.79 a litre in Delhi.

“You have to consider many factors. (Due to) the hurricane in the US, the refining capacity has been impacted to a large extent. Due to this there is demand-supply mismatch, there is a temporary spike,” he said, explaining the recent price rise.

Of the tax that central government collects on petroleum products, 42% goes to the states, Jaitley said.

“Then Congress and CPM (state) governments should say they don't need taxes from that,” he said. “You should remember, when oil prices used to be reviewed on fortnightly basis two years ago, governments in Delhi, Haryana, Punjab and Himanchal Pradesh used to increase the VAT with the same quantum with which petrol prices used to be reduced in the review.” The government abolished the 15-year-old practice of fortnightly price revision in June and moved to daily changes in petrol and diesel in line with international oil movements.

GSTN ISSUES Asked about issues besetting the GST Network (GSTN), Jaitley asked businesses to avoid a last-minute rush for tax filing. He said GSTN has the capacity to handle 100,000 returns per hour, which translates to 2.4 million returns a day. “Today is the last day to pay taxes for August. Till last night, about 25% people had filed the return and paid their taxes. So, 75% waited for the last day,” he said. Jaitley said the GSTN worked smoothly until Tuesday night, but when 75% of businesses throng the portal on a single day, the system will get clogged.

“Therefore, I would appeal to everybody, it is in their interest (to file returns early),” he said. Since businesses have a broad idea about the taxes to be paid, they should start filing returns by the 14th or 15th of the next month, Jaitley added. To ease the compliance burden, the GST Council has allowed businesses to file initial tax returns with the GSTR-3B form for the first six months of GST rollout until December.